Building Contracts

If you have purchased land on which you intend to build a new house or commercial premises then prior to signing a building contract you should consider carefully the documentation involved.

If you have engaged an architect or other person independent of the builder then they can assist you in checking that the documentation is appropriate. In particular your architect can consider the contracts, specifications, engineering drawings, landscaping drawings and the like.

There are various standard forms of building contracts that your builder may elect to use. These include contracts prepared by the Royal Australian Institute of Architects, the Master Builders Association, the Department of Fair Trading, the Housing Industry Authority, etc.

When considering the terms of the contract you should assess the reasonableness of the time for completion of the works and be familiar with the mechanism by which the builder can legitimately claim extra time.

The time for completion of the construction works is relevant to any "liquidated damages clause" which may appear in the contract. Such a clause will entitle you to payment of moneys from the builder in certain circumstances if there is a delay. Do not be trapped into the $1.00 per week allowance which some standard form building contracts include.

Familiarise yourself with the prime cost items and provisional sums specified in the contract. It is our recommendation that prior to signing a building contract you are fully aware of all those circumstances which may result in increased costs. Unexpected costs in a building project can of course bring the matter to a standstill prior to completion of the works and could potentially leave you without access to your property for a long period.

Be careful that you properly understand your obligation to make progress payments and be careful that your obligation in this regard will fit with any limitations on the making of progress payments in any bank loan facility you have.

There are numerous circumstances which may arise during your building project which will give the builder legitimate and reasonable cause for extending the contract period. Accordingly you must be careful not to commit to any deadlines which may expose you to extra risk of further expense. In particular you should attempt to have an arrangement for alternative accommodation if you are leasing a property while waiting for your new home to be constructed.

The building contract will give the builder rights in certain circumstances to stop work, for example if you fail to make payments on time. Alternately there will be aspects of the contract that will permit you to withhold payments if the builder has outstanding obligations. It is best that you have knowledge of such circumstances prior to signing the contract.

A major source of irritation to people building new homes is that sometimes the builder will ask for their final payment while the owner expects further works to be done. If work is not specified in the contract to be part of the job then you cannot expect the builder to do it without additional payments and accordingly you should have a clear idea of what is included and what is not included in the building contract works prior to signing.

While legislation in New South Wales will give you the benefit of certain statutory warranties relating to workmanship and materials, it is desirable that you have a contractual obligation requiring that the builder rectify specified defects for a short period after completion. This "defects liability period" is typically three (3) months. Check that your contract has such a clause.

Your property may be subject to encumbrances on the title such as easements, covenants, rights of ways and restrictions on use. The person who prepares your house plans must obtain copies of these encumbrances from the Land Titles Office to ensure that they are not designing a building that breaches the encumbrances. The most obvious example is a set of house plans, which tries to locate part of the building over an easement!

Obtaining building approval from the local council is more complex than ever before. Council consents invariably issue with numerous conditions. Prior to signing the building contract you should read through all of the conditions and be very clear as to which of them the builder will be liable for and those for which you will be liable.

As in all contractual matters, the written contract should be your first resort if a dispute arises. Accordingly a building contract should not be signed unless you are aware of its form and content and that it is properly completed and reasonably fair to all parties.